2024 (5) TMI 998 - AT - Insolvency and Bankruptcy

Dismissal of application filed for resolution - application dismissed on the ground that since the name of the Corporate Debtor has already been struck off by the RoC, therefore, the application under Section 9 cannot be further prosecuted - whether the application under Section 9 is filed for winding up or for initiation of CIRP? - HELD THAT - Winding up is the process by which a company is dissolved and its assets are liquidated to pay off its creditors and any remaining assets are distributed to its shareholders. The winding up of a company can be initiated voluntarily by the company s shareholders by passing a resolution and appointing liquidator to oversee the process and winding up can also be by an order of the Court wherein the Court appoints the liquidator and the process is governed by the Rules set up in the Act and other applicable laws. This process is initiated when the company is unable to pay its debts or when it is just and equitable to do so. The mechanism of winding up is applied for the recovery of debt. On the other hand, it has been repeatedly held by the Hon ble Supreme Court that the Code is not a debt recovery mechanism but a mechanism for revival of a company fallen in debt. It has been held that the Code is a beneficial legislation intended to put the corporate debtor back on its feet and is not a mere money recovery legislation. The CIRP is not intended to be adversarial to the CD but is aimed at protecting the interests of the CD. The primary focus of the legislation is thus to ensure the revival and continuation of the CD by protecting the CD from its own management and from a corporate death by liquidation. The preamble of the Code speaks of maximisation of value of assets of the CD and balancing the interests of all the stakeholders with an object to keep the CD as a going concern. Section 252(3) travels into an altogether different direction rather than the way it has been observed in the case of Hemang (Supra) because Section 252(3) gives a right of appeal to a company, member, director or workmen to challenge the order of the Registrar passed under Section 248 (5) on the three grounds, namely, while its name was struck off it was carrying on business, or was in operation or otherwise it is just which has to be established by pleadings and evidence before the Tribunal and only then the order can be passed which shall again be a subject of an appeal in terms of Section 61 of the Code but in our humble opinion, there is nothing like automatic restoration on the filing of the application under Section 7 or 9 of the Code. There are no error in the order of the Adjudicating Authority which requires any interference by this Court - appeal dismissed.

Summary

Issues Involved:
1. Whether an application u/s 9 of the Insolvency and Bankruptcy Code, 2016 (IBC) can be maintained against a Corporate Debtor whose name has been struck off by the Registrar of Companies (RoC).
2. Interpretation of relevant provisions of the Companies Act, 2013 and the IBC regarding the dissolution and restoration of a company.

Summary:

Issue 1: Maintainability of Application u/s 9 of IBC Against Struck-Off Corporate Debtor
The Appellant, an Operational Creditor, filed an application u/s 9 of the IBC against the Corporate Debtor for the resolution of an amount of Rs. 18,34,120.93/-. The application was dismissed by the Adjudicating Authority (National Company Law Tribunal, New Delhi Bench) on the ground that the Corporate Debtor's name had already been struck off by the RoC. The Appellant contended that striking off the name of the Corporate Debtor does not bar the initiation of the Corporate Insolvency Resolution Process (CIRP) and relied on previous decisions (Hemang Phophalia Vs. The Greater Bombay Co-Operative Bank Ltd. & Anr., and Elektrans Shipping Pte. Ltd. Vs. Pierre D'Silva) to support their argument.

Issue 2: Interpretation of Relevant Provisions
The Tribunal examined various provisions of the Companies Act, 2013, and the IBC. It was noted that:
- Section 248 of the Companies Act empowers the RoC to remove the name of a company from the register if it has not been carrying on business or operations.
- Section 250 states that a company shall cease to operate as a company and its certificate of incorporation shall be deemed canceled from the date of publication of the notice.
- Section 252 provides the right of appeal against the order of the RoC, allowing restoration of the company's name if it was carrying on business or it is just to restore it.

The Tribunal also discussed the purpose of the IBC, which is to ensure the revival and continuation of the Corporate Debtor by protecting it from its own management and from liquidation. It was emphasized that the IBC is not a debt recovery mechanism but a means to revive a company in debt.

Conclusion:
The Tribunal concluded that the previous judgments relied upon by the Appellant (Hemang Phophalia and Elektrans Shipping) were per incuriam as they did not consider the relevant provisions of the Companies Act and the IBC in their true sense. It was held that an application u/s 9 of the IBC is not maintainable against a Corporate Debtor whose name has been struck off by the RoC. The appeal was dismissed, affirming that the Adjudicating Authority's order was correct and did not require interference.